Model Portfolio Review – March 4, 2014

In the recent five years, the S&P 500 gained 24.71% in 2009, 11.65% in 2010, 0% in 2011, 12.1% in 2012, and 31.8% in 2013. The market performance looks good. Could investors make more money by investing in GuruFocus Model Portfolios? It is time to check the performances. The following are the details of the performances of the four value strategies:

U.S. stock market had an excellent 2013. The market benchmark S&P 500 went up 31.8%, which is the highest since the financial crisis. Our portfolio of Top 25 Historical Low P/B Ratio Companies even outperformed the S&P 500 by 1.38%.

Regarding the Top 25 Undervalued Predictable Companies, the portfolio gained 55.72% and 20.17%, respectively, in 2009 and 2010, almost double the return of the S&P 500 in that period. However, from 2011 to 2013, the portfolio Top 25 Undervalued Predictable Companies underperformed the market. In 2014, it outperformed the S&P 500 by 0.33%. In all, since inception, Buffett-Munger Screener Top 25 outperformed the S&P 500 by 28.32%. The portfolio of Top 25 Undervalued Predictable Companies outperformed the market by 29.74%, even higher than the Buffett-Munger Screener.

Without any doubt, Warren Buffett (Trades, Portfolio)’s investment strategy is the most successful ever. He believes that to buy companies with “predictable and proven” earnings can be very profitable in stock market investing. Based on his strategy, GuruFocus develops "Buffett-Munger Screener," which helps to find companies with high quality business at undervalued or fair-valued prices:

Companies that have competitive advantages. They can maintain or even expand their profit margin while growing their business.

Companies that incur little debt while growing business.

Companies that are fair valued or under-valued. We use PEPG as indicator. PEPG is the P/E ratio divided by the average growth rate of EBITDA over the past five years.

Both Buffett-Munger Screener and Top 25 Undervalued Predictable Companies select stocks from the companies that have the highest predictability rank. Top 25 Undervalued Predictable Companies Portfolio selects the stocks that are undervalued from DCF calculations. For the current list of undervalued predictable companies, go to the screener. For the current list of good companies at fair or undervalued price for Buffett-Munger screener, click here.

All the portfolios are rebalanced once a year; therefore, no portfolio changes will be made at this time.

From above analysis, we can see for a single year, the performance of our portfolios may not beat the market, yet in the long run, it is profitable to invest using our model portfolios.

These are the summaries of the four value strategies mentioned above:
1. Buffett-Munger Screener: Invests in predictable companies that have low debt and consistent profit margin, and are traded at low PE to growth ratios.
2. Undervalued Predictable Companies: Invest in predictable companies that are undervalued based on the DCF model.
3. Historical low P/S: Companies that have high predictability rank, but are traded at historical low P/S ratios.
4. Historical low P/B: Companies that have high predictability rank, but are traded at historical low P/B ratios.

GuruFocus premium membership is needed to access the details of the portfolios and screeners. We also publish a monthly Buffett-Munger newsletter which features the picks from Buffett-Munger Screener. If you are a premium member, you can download this for free. If you are not a Premium Member, we invite you for a 7-day Free Trial.

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